From ZeroHedge, August 13:
Wall Street Warns About "Perfect Storm" Diesel Crunch:
- Goldman's Daan Struyven Shows Global Diesel Exports Crashing
- Citi's Anthony Yuen Warns: Global Diesel Inventories "Below 5YR Minimum"
- BofA's Francisco Blanch Warns: "Diesel's Perfect Summer Storm" Unfolding
- Jefferies' Sam Burwell Warns: Hormuz Shock "Manifesting Itself In Cracks, Not Crude"
Brent crude remains hostage to daily geopolitical developments in the Gulf region more than five months into the conflict, with muted traffic through the Strait of Hormuz (read the latest US-Iran wrap) constraining tanker flows and driving refined-product markets to new, dire extremes as they become the focal point of the energy crisis.
Brent briefly fell below $80 a barrel last week as prospects improved for an Iran-Oman deal to reopen the maritime chokepoint, before rebounding toward $90 as negotiations stalled this week.
Hormuz traffic has stabilized at about 10 crossings a day, down from 30 to 40 before the latest escalation. Liquids flows are averaging roughly 4 million barrels a day, well below public estimates of 9 million, according to HSBC analysts.
We earlier cited Jefferies analyst Sam Burwell, who warned clients:
"What this all shows is that global oil-market tightness is manifesting itself in cracks, not crude, at least for now. Wide cracks suggest refining runs should remain strong, however, which is positive for crude.
By lunchtime Thursday, the front-month US diesel crack spread (HOCL1 on the Terminal) had exceeded the $97 level reached in mid-March, when the US-Iran conflict was just three weeks old, and was closing in on $100. That signals extreme tightness in diesel....
***
...Francisco Blanch, head of commodities at Bank of America, warned clients in a note earlier titled "Diesel's Perfect Summer Storm" that the industrial fuel is "materially disrupted in 3 of 4 major regions" around the world.
As we recently warned (see report: The crude reality of oil markets), supply disruptions are amplifying the squeeze on petroleum markets.
Three of the world's four major refining hubs remain impaired for one reason or another.
First, the closure of the Strait of Hormuz and adjacent military activity has reduced Middle East fuel exports, with the recent Houthi strike on Saudi Arabia's Jazan refinery being the latest example.
Second, record Russian refining disruptions following Ukrainian strikes have removed significant volumes from the global diesel pool.
Third, fearful of potential domestic shortages, China has yet to restart petroleum product exports to the Asia region. As such, Europe has increasingly relied on record US exports to fill the gap.
Yet those flows are drawing down already tight US inventories, the only major hub open for business, creating a global competition for fuel that is pushing diesel cracks back toward record seasonal highs.
Beyond Ukraine drone-striking Russian energy assets, Moscow has decided to ban diesel exports; yet again, more evidence of dwindling global supplies:...
....MUCH MORE (chart mania)
Previously:
March 11 - "Diesel markets, upended by Middle East conflict, threaten global economic slowdown"
Diesel, very important....
March 2 - Fuel: More On Saudi Arabia's Giant Ras Tanura Refinery
March 5 - Diesel Prices Are Rising Fast
March 8 - Diesel equals Soybeans; Soybeans equal Diesel (in more ways than one) reprised
We will see a double whammy in the ag sector. Fertilizer prices, including ammonia which is made from natural gas, are rising fast. Additionally, with the Northern Hemisphere planting season approaching, the cost of diesel fuel for the tractors and later this year for combines and other harvesting implements will of necessity pass through, eventually, to the end user....
April 14 - "‘It’s killing everything.’ California’s truckers are buckling under country’s priciest diesel"
July 12 - The World Runs On Diesel and Diesel Is Running out
With Russian shipping and refining capacity getting whacked we're seeing crack spreads greater than the price of crude itself.
July 15 - "JPMorgan shifts focus from Hormuz oil chokepoint to Russian refining crisis"
Or a picture that's worth a thousand words, the stock price chart of independent refining behemoth (revenue [ttm] $139.40B) Valero:
Year-to-date up 108%; past twelve months up 154%
